The Nature of Strategic Management

Instructors’ Manual to Accompany Strategic Management of Health Care Organizations, Fifth Edition C H A P T E R 1 The Nature of Strategic Management SUGGESTIONS FOR EFFECTIVE TEACHING We usually start the first class by asking the questions presented at the end of the Introductory Incident: “In the age of rising costs and increasing quality demands, is it, then, the worst of times only for the hospital sector?” “Are hospitals the dinosaurs of today’s health care world?” The Introductory Incident points out that although the United States has the most advanced health care system in the world, it has many problems and is undergoing rapid change. The Incident highlights how hospitals in two cities (Boston and Nashville) have dealt with this “whitewater change” and “hypercompetition.” Further, the Incident illustrates the nature of strategy and how organizations respond to changing environmental conditions. In addition, discussing the network model (Boston) and the vertically integrated model (Nashville) will give students a sense of possible strategic options. This approach encourages students to begin thinking about developing rational, well-thought-out strategic responses to a changing environment. After some discussion of the differences in the Boston and Nashville markets, we begin discussing “change” as the primary reason for the need for strategic management. The first section in the chapter mentions changes that are currently taking place in health care. These changes are categorized into legislative/political, economic, social/demographic, technological, and competitive changes. We classified these changes to encourage students to begin to organize their thinking (using a systems approach). These are the same categories that will be discussed in Chapter 2. To stimulate student thinking and participation in class discussion, we try the following exercise. We ask the class to suggest external issues that will require responses from health care organizations. Sometimes it is helpful to cite what has happened beginning in the year 2000 through today (developments in managed care, AIDS, imaging, outpatient surgery, and others) and then ask students to speculate on the changes likely to take place from today to the year 2010. This exercise helps students understand the magnitude of change facing all health care organizations. The following format may be used to generate discussion. What changes have taken place? Speculate on possible future changes. (2000 through Today) (Today through 2010) World Health Care World Health Care It should be noted that not only is there more change taking place than ever before, but the rate of change is increasing. This phenomenon has been called “whitewater change.” The only way to cope with whitewater change is to strategically manage the organization. - 1 - Instructors’ Manual to Accompany Strategic Management of Health Care Organizations, Fifth Edition In addition, it seems certain that there will be more change in the health care industry in the next ten years than in the past ten years. We try to have students speculate about the kinds of changes that will take place. At some point, we usually say, “If there is no change expected, you really don’t need strategic management – you need long-range planning.” This is a good point to make sure students understand the difference. The difference is discussed under the heading “The Foundations of Strategic Management.” Once we have the students convinced that there is considerable external environmental change, we indicate that strategic management is how organizations cope with change – deal with dynamic environments. After we have established a need for strategic management, we move to the foundations. We emphasize its military and business origins (primarily emphasizing the business part) and ask the students why health care organizations have adopted it as a management philosophy. This question quickly gets us back to change but most students get the point. In this discussion, we also differentiate strategic management from health policy. Mike Morrisey does a nice job of explaining health policy in Perspective 1-3. This discussion should conclude that strategic management concerns one organization coping with a changing environment whereas health policy concerns many organizations and the “rules” for provider and consumer behavior. As a way of introducing the model of strategic management, we begin by discussing the “map and compass” – our metaphor for planning and learning. In our view, strategic management involves creating models or maps for thinking about strategy concepts but with the understanding that users will also have to think – reinvent or use their compasses. When the maps no longer work or they lose their way, however, if strategic thinkers understand what they are trying to accomplish they will get back on track and be able to redesign their maps (current understanding of strategic management). This metaphor is useful in relating Mintzberg’s design school versus the learning school to our model of strategic management as it incorporates analytical approaches (strategic planning) as well as learning concepts (strategic thinking and managing the strategy). We explain that analytical or rational approaches to strategic management rely on the development of a logical sequence of steps or processes (linear thinking). Emergent models rely on intuitive thinking, leadership, and learning (lateral thinking). The analytical model is similar to a map whereas the emergent model is similar to a compass. We discuss that a model is an organizing framework to conceptualize a complex process. Without some type of organizing framework, strategic management becomes an overwhelming task. A model shows relationships and the underlying logic of a phenomenon. Models are abstractions of reality (short-cuts to storing masses of data). Models draw upon “systems” thinking – they illustrate interrelationships. A model can clearly show the necessary steps in a process and become a means for communicating the steps. Next, we introduce strategic management as the organizational mechanism to cope with change. This requires introducing strategic thinking, strategic planning (as the process of developing a plan), and managing the strategy (carrying out the plan). We introduce - 2 - Instructors’ Manual to Accompany Strategic Management of Health Care Organizations, Fifth Edition Exhibit 1-3 as the vehicle to discuss and differentiate these concepts. It may be used as the model or map for the entire book and course. We introduce the systems perspective to encourage students to think about classes, categories, and relationships – to order or make their thinking more systematic. To us, strategy making is a disciplined thought process – “strategic thinking.” We emphasize that leaders must be strategic thinkers and may use systems concepts to better understand the relationship of the organization to its environment and the relationships within the organization. Successful leaders see these relationships and create a vision for new relationships in the future. LECTURE NOTES Introductory Incident: The Tale of Two Cities Continues. The Introductory Incident points out that although the United States has the most advanced health care system in the world, it has many problems and is undergoing rapid change. The Incident highlights how hospitals in two cities (Boston and Nashville) have dealt with this “whitewater change.” Further, the Incident illustrates the nature of strategy and how organizations respond to changing environmental conditions. I. Managing in a Dynamic Environment. Learning Objective 1 A. Many environmental changes are taking place. The instructor may ask the class to suggest external issues that will require responses from health care organizations. Sometimes it is helpful to provide some historical perspective citing what happened in the 1980s through today (PPS, managed care, AIDS, Balanced Budget Act, HIPAA, and others) and then ask students to speculate on the changes likely to take place from today to the year 2010. B. It should be noted that not only is there more change taking place than ever before, the rate of change is increasing. This phenomenon has been called “whitewater change.” The only way to cope with whitewater change is to strategically manage the organization. In addition, it seems certain that there will be more change in the health care industry in the next ten years than in the past ten years. C. Major shifts in the health care industry include the changes in health care financing and industry restructuring. Health care organizations have increased substantially in size. Ask the students to point out the latest consolidations, mergers, and acquisitions taking place in health care in their state, nationally and internationally. D. The economy is more global – many new markets and competitors. E. Many industries overlap (hotels operating nursing homes, hospitals offering home health care, and so on). - 3 - Instructors’ Manual to Accompany Strategic Management of Health Care Organizations, Fifth Edition F. Competition has increased (from within as well as outside the traditional health care industry). G. It is the adoption of strategic management that has allowed organization to cope with industry change and shifts. II. The Foundations of Strategic Management. Learning Objective 2 A. Strategic management has its origins within the military. B. Business enterprises have successfully used strategic management for a number of years

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